{"id":180,"date":"2021-01-26T22:20:41","date_gmt":"2021-01-26T22:20:41","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=180"},"modified":"2021-08-04T23:03:57","modified_gmt":"2021-08-04T23:03:57","slug":"180","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/chapter\/180\/","title":{"raw":"Production Budget","rendered":"Production Budget"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Prepare a production budget<\/li>\r\n<\/ul>\r\n<\/div>\r\n<img class=\"aligncenter wp-image-1430\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/07220327\/Screen-Shot-2021-05-07-at-3.03.06-PM.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The production budget is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the operating budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"433\" \/>\r\n\r\nThe <strong>production budget<\/strong> considers the units in the sales budget and the company\u2019s inventory policy. Managers develop the production budget in units and then in dollars. Determining production volume is an important task. Companies should schedule production carefully to maintain certain minimum quantities of inventory while avoiding excessive inventory accumulation. The principal objective of the production budget is to coordinate the production and sale of goods in terms of time and quantity.\r\n\r\nCompanies using a just-in-time inventory system need to closely coordinate purchasing, sales, and production. In general, maintaining high inventory levels allows for more flexibility in coordinating purchases, sales, and production. However, businesses must compare the convenience of carrying inventory with the cost of carrying inventory; for example, they must consider storage costs and the opportunity cost of funds tied up in inventory.\r\n\r\nFirms often subdivide the production budget into budgets for materials, labor, and manufacturing overhead, which we will discuss next. Usually materials, labor, and some elements of manufacturing overhead vary directly with production within a given relevant range of production. Fixed manufacturing overhead costs do not vary directly with production but are constant in total within a relevant range of production. To determine fixed manufacturing overhead costs accurately, management must determine the relevant range for the expected level of operations.\r\n\r\nFor our example company, GelSoft, we\u2019ll assume the new company policy is to hold enough product in ending inventory to cover the first month of sales of the next quarter, and so they try to produce enough to maintain one-third of the next quarter's sales in ending inventory (and they round that amount to the nearest hundred). Finished goods inventory at the end of the prior budget year is projected to be 30,000 units.\r\n\r\nFrom this data, we can prepare the schedule of planned production using the sales budget as our starting place.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nSales Budget in Units<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Quarter<\/span><\/th>\r\n<th class=\"r\" scope=\"col\">Units (rounded)<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Q1<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 40,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Q2<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 42,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Q3<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 44,100<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Q4<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 46,305<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Projected Sales<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nProduction Budget in Units<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Budgeted\/Projected sales, in units<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 172,405<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Plus: ending inventory target (see below)<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 16,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total units needed to meet goals<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: units in beginning inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 30,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Units needed to be produced to meet goals<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>158,605<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Units to produce<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 158,605<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Plus beginning inventory<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 30,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Ending inventory held over<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 (16,200)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Units available for sale<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nImportant things to note:\r\n<ol>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">In addition to the 172,405 units that will be sold, the company has to produce enough units to have 16,200 on hand at the end of the year to cover January sales of the next budget year. Assuming the same sales increase of 5%, Q1 sales for the next budget cycle would be Q4 of this budget cycle time 1.05 = 46,305 * 1.05 = 48,620. One-third of that amount is 16,206.75 which, when rounded to the nearest hundred, equals 16,200 units for December 31 ending inventory.<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">There are 30,000 units on hand at the beginning of the budget year, which reduces the number of units that need to be produced to hit the sales and ending inventory targets.<\/li>\r\n \t<li style=\"font-weight: 400;\" aria-level=\"1\">172,405 to be sold plus 16,200 to have on hand at the end of the year is 188,605, less the 30,000 on hand at the beginning of the year, equals a production run of 158,605. This is less than the number of units to be sold because the company is trying to reduce the number of units on hand by selling off beginning inventory and then, using the production budget, keeping units on hand as low as possible.<\/li>\r\n<\/ol>\r\nHere is the production budget by quarter, starting with a recap of the sales budget:\r\n<div align=\"left\">\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft Sales Budget<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\r\n<th class=\"r\" scope=\"col\">Q1<\/th>\r\n<th class=\"r\" scope=\"col\">Q2<\/th>\r\n<th class=\"r\" scope=\"col\">Q3<\/th>\r\n<th class=\"r\" scope=\"col\">Q4<\/th>\r\n<th class=\"r\" scope=\"col\">Year<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales in Units<\/td>\r\n<td class=\"r\">40,000<\/td>\r\n<td class=\"r\">42,000<\/td>\r\n<td class=\"r\">44,100<\/td>\r\n<td class=\"r\">46,305<\/td>\r\n<td class=\"r\">172,405<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Budgeted Price<\/td>\r\n<td class=\"r\">$34<\/td>\r\n<td class=\"r\">$34<\/td>\r\n<td class=\"r\">$34<\/td>\r\n<td class=\"r\">$34<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Sales in Dollars<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,360,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,428,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,499,400<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,574,370<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$5,861,770<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\n&nbsp;\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nProduction Budget in Units<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\r\n<th class=\"r\" scope=\"col\">Q1<\/th>\r\n<th class=\"r\" scope=\"col\">Q2<\/th>\r\n<th class=\"r\" scope=\"col\">Q3<\/th>\r\n<th class=\"r\" scope=\"col\">Q4<\/th>\r\n<th class=\"r\" scope=\"col\">Year<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Budgeted\/Project sales, in units<\/td>\r\n<td>40,000<\/td>\r\n<td>42,000<\/td>\r\n<td>44,100<\/td>\r\n<td>46,305<\/td>\r\n<td>\u00a0 172,405<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Plus: ending inventory target<\/td>\r\n<td class=\"r\">14,000<\/td>\r\n<td class=\"r\">14,700<\/td>\r\n<td class=\"r\">15,400<\/td>\r\n<td class=\"r highlight\">16,200<\/td>\r\n<td class=\"r highlight\">16,200<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total units needed to meet goals<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>54,000<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>56,700<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>59,500<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62,505<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less: units in beginning inventory<\/td>\r\n<td class=\"r highlight-green\">30,000<\/td>\r\n<td class=\"r\">14,000<\/td>\r\n<td class=\"r\">14,700<\/td>\r\n<td class=\"r\">15,400<\/td>\r\n<td class=\"r highlight-green\">30,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Units needed to be produced to meet goals<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>24,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>42,700<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>44,800<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>47,105<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>158,605<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\n<\/div>\r\nExplanation: Each quarter is calculated the same as an annual budget, starting with projected sales, adding ending inventory, and subtracting beginning inventory to get the number of units needed to be produced. Notice the drastic reduction in units needed to be produced in Q1 because of the large beginning inventory.\r\n\r\nHere is a short review of how to create a production budget:\r\n\r\n<iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352577&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=YwIUeaFkOS8&amp;video_target=tpm-plugin-a1o0fhet-YwIUeaFkOS8\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe>\r\n\r\nYou can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/TheProductionBudget_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"The Production Budget\" here (opens in new window)<\/a>.\r\n\r\nBefore you create a production budget based on this sales budget, check your understanding of how to create a sales budget.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220593[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Prepare a production budget<\/li>\n<\/ul>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1430\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/07220327\/Screen-Shot-2021-05-07-at-3.03.06-PM.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The production budget is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the operating budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"433\" \/><\/p>\n<p>The <strong>production budget<\/strong> considers the units in the sales budget and the company\u2019s inventory policy. Managers develop the production budget in units and then in dollars. Determining production volume is an important task. Companies should schedule production carefully to maintain certain minimum quantities of inventory while avoiding excessive inventory accumulation. The principal objective of the production budget is to coordinate the production and sale of goods in terms of time and quantity.<\/p>\n<p>Companies using a just-in-time inventory system need to closely coordinate purchasing, sales, and production. In general, maintaining high inventory levels allows for more flexibility in coordinating purchases, sales, and production. However, businesses must compare the convenience of carrying inventory with the cost of carrying inventory; for example, they must consider storage costs and the opportunity cost of funds tied up in inventory.<\/p>\n<p>Firms often subdivide the production budget into budgets for materials, labor, and manufacturing overhead, which we will discuss next. Usually materials, labor, and some elements of manufacturing overhead vary directly with production within a given relevant range of production. Fixed manufacturing overhead costs do not vary directly with production but are constant in total within a relevant range of production. To determine fixed manufacturing overhead costs accurately, management must determine the relevant range for the expected level of operations.<\/p>\n<p>For our example company, GelSoft, we\u2019ll assume the new company policy is to hold enough product in ending inventory to cover the first month of sales of the next quarter, and so they try to produce enough to maintain one-third of the next quarter&#8217;s sales in ending inventory (and they round that amount to the nearest hundred). Finished goods inventory at the end of the prior budget year is projected to be 30,000 units.<\/p>\n<p>From this data, we can prepare the schedule of planned production using the sales budget as our starting place.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nSales Budget in Units<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Quarter<\/span><\/th>\n<th class=\"r\" scope=\"col\">Units (rounded)<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Q1<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 40,000<\/td>\n<\/tr>\n<tr>\n<td>Q2<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 42,000<\/td>\n<\/tr>\n<tr>\n<td>Q3<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 44,100<\/td>\n<\/tr>\n<tr>\n<td>Q4<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 46,305<\/td>\n<\/tr>\n<tr>\n<td>Total Projected Sales<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nProduction Budget in Units<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Budgeted\/Projected sales, in units<\/td>\n<td class=\"r\">\u00a0 \u00a0 172,405<\/td>\n<\/tr>\n<tr>\n<td>Plus: ending inventory target (see below)<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 16,200<\/td>\n<\/tr>\n<tr>\n<td>Total units needed to meet goals<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\n<\/tr>\n<tr>\n<td>Less: units in beginning inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 30,000<\/td>\n<\/tr>\n<tr>\n<td>Units needed to be produced to meet goals<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>158,605<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Units to produce<\/td>\n<td class=\"r\">\u00a0 \u00a0 158,605<\/td>\n<\/tr>\n<tr>\n<td>Plus beginning inventory<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 30,000<\/td>\n<\/tr>\n<tr>\n<td>Ending inventory held over<\/td>\n<td class=\"r\">\u00a0 \u00a0 (16,200)<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Units available for sale<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 172,405<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Important things to note:<\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\">In addition to the 172,405 units that will be sold, the company has to produce enough units to have 16,200 on hand at the end of the year to cover January sales of the next budget year. Assuming the same sales increase of 5%, Q1 sales for the next budget cycle would be Q4 of this budget cycle time 1.05 = 46,305 * 1.05 = 48,620. One-third of that amount is 16,206.75 which, when rounded to the nearest hundred, equals 16,200 units for December 31 ending inventory.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">There are 30,000 units on hand at the beginning of the budget year, which reduces the number of units that need to be produced to hit the sales and ending inventory targets.<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\">172,405 to be sold plus 16,200 to have on hand at the end of the year is 188,605, less the 30,000 on hand at the beginning of the year, equals a production run of 158,605. This is less than the number of units to be sold because the company is trying to reduce the number of units on hand by selling off beginning inventory and then, using the production budget, keeping units on hand as low as possible.<\/li>\n<\/ol>\n<p>Here is the production budget by quarter, starting with a recap of the sales budget:<\/p>\n<div style=\"text-align: left;\">\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft Sales Budget<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\n<th class=\"r\" scope=\"col\">Q1<\/th>\n<th class=\"r\" scope=\"col\">Q2<\/th>\n<th class=\"r\" scope=\"col\">Q3<\/th>\n<th class=\"r\" scope=\"col\">Q4<\/th>\n<th class=\"r\" scope=\"col\">Year<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales in Units<\/td>\n<td class=\"r\">40,000<\/td>\n<td class=\"r\">42,000<\/td>\n<td class=\"r\">44,100<\/td>\n<td class=\"r\">46,305<\/td>\n<td class=\"r\">172,405<\/td>\n<\/tr>\n<tr>\n<td>Budgeted Price<\/td>\n<td class=\"r\">$34<\/td>\n<td class=\"r\">$34<\/td>\n<td class=\"r\">$34<\/td>\n<td class=\"r\">$34<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Sales in Dollars<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,360,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,428,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,499,400<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$1,574,370<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$5,861,770<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n<p>&nbsp;<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nProduction Budget in Units<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\n<th class=\"r\" scope=\"col\">Q1<\/th>\n<th class=\"r\" scope=\"col\">Q2<\/th>\n<th class=\"r\" scope=\"col\">Q3<\/th>\n<th class=\"r\" scope=\"col\">Q4<\/th>\n<th class=\"r\" scope=\"col\">Year<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Budgeted\/Project sales, in units<\/td>\n<td>40,000<\/td>\n<td>42,000<\/td>\n<td>44,100<\/td>\n<td>46,305<\/td>\n<td>\u00a0 172,405<\/td>\n<\/tr>\n<tr>\n<td>Plus: ending inventory target<\/td>\n<td class=\"r\">14,000<\/td>\n<td class=\"r\">14,700<\/td>\n<td class=\"r\">15,400<\/td>\n<td class=\"r highlight\">16,200<\/td>\n<td class=\"r highlight\">16,200<\/td>\n<\/tr>\n<tr>\n<td>Total units needed to meet goals<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>54,000<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>56,700<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>59,500<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>62,505<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>188,605<\/td>\n<\/tr>\n<tr>\n<td>Less: units in beginning inventory<\/td>\n<td class=\"r highlight-green\">30,000<\/td>\n<td class=\"r\">14,000<\/td>\n<td class=\"r\">14,700<\/td>\n<td class=\"r\">15,400<\/td>\n<td class=\"r highlight-green\">30,000<\/td>\n<\/tr>\n<tr>\n<td>Units needed to be produced to meet goals<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>24,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>42,700<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>44,800<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>47,105<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>158,605<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<\/div>\n<p>Explanation: Each quarter is calculated the same as an annual budget, starting with projected sales, adding ending inventory, and subtracting beginning inventory to get the number of units needed to be produced. Notice the drastic reduction in units needed to be produced in Q1 because of the large beginning inventory.<\/p>\n<p>Here is a short review of how to create a production budget:<\/p>\n<p><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352577&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=YwIUeaFkOS8&amp;video_target=tpm-plugin-a1o0fhet-YwIUeaFkOS8\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/oerfiles.s3.us-west-2.amazonaws.com\/Managerial+Accounting\/Transcripts\/TheProductionBudget_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;The Production Budget&#8221; here (opens in new window)<\/a>.<\/p>\n<p>Before you create a production budget based on this sales budget, check your understanding of how to create a sales budget.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220593\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220593&theme=oea&iframe_resize_id=ohm220593\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-180\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Production Budget. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>The Production Budget. <strong>Authored by<\/strong>: Education Unlocked. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/YwIUeaFkOS8\">https:\/\/youtu.be\/YwIUeaFkOS8<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":8,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Production Budget\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. 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